Please note BBC Politics Show must be credited if any part of this transcript is used.

NB:This transcript was typed from a recording and not copied from an original script.

Because of the possibility of mis-hearing and the difficulty, in some cases, of identifying individual speakers, the BBC cannot vouch for its accuracy.

On Politics Show, Sunday 19 March 2006, Jon Sopel interviewed:

John Hutton MP, Secretary of State for Work and Pensions

Liam Fox MP, Shadow Defence Secretary

John Hutton, Secretary of State for Work and Pensions

Interview with John Hutton MP

JON SOPEL: John Hutton, can you say definitively that honours, stroke peerages, have not been given or suggested in return for loans.

JOHN HUTTON: Yes, I think that that is the position.

I think we've got to remember one thing, in all the noise and the heat of the last couple of days, it's a perfectly lawful and legitimate thing for people to make donations to political parties.

I think there's a sense if you like, if you ... (interjection) .. were to go back over the few days that you'd think it was some how a crime for people to donate or to loan money to political parties. It isn't.

JON SOPEL: Just on that point very specifically because John Prescott seemed unable to give that assurance this morning when he was asked to give a categorical assurance, he said, I think we've got to look a lot more at this before you can come to those conclusions.

JOHN HUTTON: No, I think, I think it is clear that that is, that is the case. I think John was talking about the wider issues there. But I think the, the government when it came in to office a few years ago, took some unprecedented steps to make sure that there was more transparency and openness around the whole process of how we finance our political parties and I think those were the right things to do and I think it was also the right thing to do this week, when these allegations are put to us and put to the Prime Minister and put to the Government, that we respond in a way that does address the concerns that clearly the public have about this, and I think the right way to proceed now, is for Sir Hayden Philips to talk to all of the political parties next week, about how we can put together this review of the rules around party finance, so that we can clear all of this up and at the same time make sure that we create a level playing field between the political parties on fund raising, cos that's important too.

JON SOPEL: You talk about this greater transparency that Labour introduced. Doesn't that then mean you are guilty of the most massive hypocrisy, that having introduced these measures so that there would be transparency, used deliberate measures so you don't have to disclose who is giving you donations, finding a loop hole.

JOHN HUTTON: No, I don't think it's a question of finding a loop hole. I mean those who donate and gift money to political parties - we did change the law to make sure that their donations are publicly recorded. It's never been the case that the law required loans to be treated in the same way, and as the Prime Minister made clear this week, we are prepared to have another look at that particular issue. But as you rightly said in your introduction, all of our main political parties, have traditionally raised money through this way, and I know Liam Fox will be on the programme later, he was Chairman of the Party ... (interjection)

BOTH TOGETHER

JON SOPEL: So you feel entirely comfortable.

JOHN HUTTON: ... when this was going on in the last election ...

JON SOPEL: You feel entirely comfortable.

JOHN HUTTON: ... of the Conservatives.

JON SOPEL: You feel entirely comfortable with what's gone on this week.

JOHN HUTTON: No I, I certainly don't feel comfortable. I don't think any, anyone feels comfortable about what's gone on. But I think, as I said, the right way to respond to the allegations, and they are allegations by the way. I don't think anyone is suggesting that any law has been broken here, or if they are, they'd better put up so we can, we can deal with that allegation.

I don't think anyone is suggesting therefore that anyone has broken the rules or the law and I'm quite confident that the Labour party has not done that. But I think what we must do in the present climate, and this is why I think the Prime Minister was right to tackle this head on, is to try and move now to reassure people about the probity of public life, and the financing of political parties because I think that is very very important to do that.

JON SOPEL: And you said there was no wrong doing -specifically, and you said there were allegations. Specifically there's been alleged in the Telegraph, Sunday Telegraph this morning that certificates nominating people for honours were signed, inside - and drawn up inside Number Ten, saying that people had no financial connection with Labour. Now it appears that they did have a financial connection. If that has been signed like that, then someone has lied haven't they.

JOHN HUTTON: Well that is a very serious allegation and I think it's important that you know, that is properly dealt with. I', John, in no position today, to say whether any of those allegations are true or not but I think that it is obviously important that that issue is resolved and I think the National Executive Committee of my party, is going to have to look at this, as I understand it will do later this week. But in the middle of all of these allegations, I really do think it's important to bear one very important fact in mind. That it's not a crime to give or to lend money to a political party and however, it does seem now, in the light of this week's publicity, that somehow that is true.

And I think we've got to ask ourselves some pretty fundamental questions about whether we want to say to people, look, if you're going to donate or give, or lend to the political party of your choice, you know, you're going to have your public affairs exposed, you're going to have your personal life intruded in to in this way, and I think that would be a very very sad thing if people felt that if they were to give and I think that would be very very sad thing actually, in our public life and our body politic, if people felt that if they were to give money to a political party, they would be immediately accused of being a criminal or after some personal advancements, and I think that's quite wrong.

JON SOPEL: Are you attracted to the Tory idea of putting a cap on what people can donate or loan.

JOHN HUTTON: Well I, I don't know what the Conservatives are going to propose next week. I mean we've had an outline this morning from George Osborne. I think we should obviously be prepared to look at any idea like that, but I think what the Prime Minister announced last week, and I think this is probably the best way to proceed, is to have a genuinely independent and respected figure. Someone like Hayden Philips and I think he is by common consent a very highly regarded, very distinguished public servant to conduct this debate between the political parties.

Let's see if we can agree a terms of reference for this review and try and move on so that you know, the impression that has been created of British public life being corrupt, can be dealt with. It is not a corrupt system in this country and I think it's really really important (interjection) that we all of us, you know, make that message clear. We have a lot to be proud of for the way that we conduct our public life in this country. And I think it is a hugely bad thing for the impression to be generated that that is other than the case.

JON SOPEL: Were you surprised by what the Party Treasurer, Jack Dromey had to say.

JOHN HUTTON: I was surprised yes. And I think a lot of people in the party were surprised yes.

JON SOPEL: What, were you surprised at what he had to say or that he said it.

JOHN HUTTON: Well I was surprised about both. You know, I'm not involved myself in the party's finances. But - so I obviously don't know the detail of all of this, but I was surprised yes, of course.

JON SOPEL: And you were surprised at both. So you were surprised that he came out publicly and said that. Do you think he shouldn't have done.

JOHN HUTTON: Well again, it's very difficult for me to say. I mean I wasn't privy to any of the discussions that clearly had been going on. But I was, all can say is that I was surprised. And I think most members of the Labour Party were surprised to see that being aired publicly yes.

JON SOPEL: And there have been some suggestions that it was politically motivated to do down the Prime Minister, in favour of Gordon Brown.

JOHN HUTTON: Ah, well I mean look, that's part of the tittle-tattle of politics I'm afraid. I, I really have no comment to make about that because I have no, I was not involved in any of the discussions that were going on at the time.

JON SOPEL: Well do you think that Jack Dromey should have kept this private and raised it in the - because apparently there were meetings going on at that stage.

JOHN HUTTON: I think there were meetings going on at that particular stage. But ... (overlaps)

JON SOPEL: So would it have been better.

JOHN HUTTON: Well, he is the only person to judge that.

JON SOPEL: In your judgement ... I'm asking your judgement.

JOHN HUTTON: Well, if I had been privy to those discussions, I might be better placed to say whether he should have gone public or not. But I wasn't privy to those discussions. Everyone in public life, where ever they are, has to take responsibility for the actions and the decisions that they take. And I'm quite sure because I know Jack Dromey to be a decent and honourable person, he would have felt that was the right thing to do for him, in those circumstances, but you asked me if I was surprised that it came out, and my answer was yes, certainly.

JON SOPEL: Okay. Well one of the consequences of all this row is that it's taken the spot light off the issue that you're dealing with - pensions. The Shadow Chancellor George Osborne, was talking this morning that he kind of had inkling in the budget that the Chancellor was looking again at pension credits, which is the whole means testing issue, which was something I think you're not that keen on.

JOHN HUTTON: The pension's credit has been a huge success and I think we shouldn't lose sight of that. It's helped literally millions of pensioners escape from the, the scandalous levels of pensioner poverty, that existed in 1997 and we confirmed the scale of the advance in tackling pensioner poverty only last week, when new figures had been published.

So pensions credit has been a very very important part of the Pension Reform package that we put in place. As far as the budget is concerned, obviously the Chancellor is in discussions, obviously about the budget and we have to wait and see on Wednesday, what the, the Chancellor actually announces in the package. We have always made it clear, the Chancellor, the Prime Minister and myself, that we will come forward with our detailed pension's reform proposals in a White Paper in the Spring, and that remains the case.

JON SOPEL: Are you closer to agreeing a basic formula which says, higher retirement age in return for an increased basic state pension.

JOHN HUTTON: Well I think certainly in relation to the state pension age, I've made no secret of my view, that I think it is inevitable that the state pension age will need to, to rise, if we are to, to move in the direction of Lord Turner's recommendations.

And very interestingly Jon, yesterday we had a nationwide consultation on precisely these issues and at the start of that consultation, involving people from six cities across the UK, only about a third of people agreed with me, that the State pension probably should rise - by the end of the day, well over half thought that it was an inevitable part of funding any pension reforms. But the government hasn't made up its mind yet, we're still consulting and looking and the detail of Lord Turner's report and we'll be producing our proposals very soon.

JON SOPEL: Well I'm joined now by the Shadow Defence Secretary, Dr Liam Fox, and we'll get on to defence in a moment, in your portfolio.

But I'm more interested in maybe just talking a bit about this whole loans issue because of course you were Party Chairman up until the last election.

Can I ask how much you secured in loans in the run up to the last election.

We know that Labour's figure was £13.9m. Were you above that.

LIAM FOX: Well our total loans were published in our accounts at the end of 2004. We had total loans outstanding of about 14.8 million of which about four and a half million, were loans from our constituency associations. We'll publish the full figures again this year when they've been properly audited.

JON SOPEL: Yes, I'm talking about 2005. There must be draft figures.

LIAM FOX: We'll publish our figures in July, as we normally do. We're not caught out as the government are. We always make our loan figures public and have done so in the past and will continue to do so in the future.

JON SOPEL: So can you say whether it was above or below the figure for Labour.

LIAM FOX: I can't tell you off hand, what that figure was.

JON SOPEL: You must know.

LIAM FOX: Well I, I didn't actually deal with the financial side of that. But we've made our figures very open in the past and we'll continue to do so. On top of that, we've said that in the arrangements that we enter in to in the future, and that we'll want to make the names of those donors very clear, we also want to put a cap on the amount that any individual can donate because I think there is genuine public concern about the idea that individuals or organisations could have undue influence on a party.

Clearly the government are now saying that there's no fear of corruption, but frankly, if you're offering a peerage in return for a loan, I think most people would regard that as being very corrupt and of course the Labour Party have the additional problem of the Trade Unions, being able to fund the Labour Party, and buy a huge amount of influence, including of course the election of the Labour leader.

JON SOPEL: I want to come to what you think the cap should be set at in a moment. I just want to ask you a very specific question. Are there people who have been nominated or have been made peers, who made loans to the Conservative Party in the run up to or during the election campaign.

LIAM FOX: We never comment on nominees but those who have become Conservative peers, are there because we believe they're the right people to contribute to public life. Now if you're asking me ...

JON SOPEL: I'm sure the government would say exactly the same thing that ...

LIAM FOX: Well if you're - Yes, but what's clear from the government is that those who gave loans, believed that they were giving loans in return for a peerage. That is not the case in the Conservative Party - we've always believed that those who enter the House of Lords should do so because they've the right people to be in public life. Now, should people be excluded from that process because they've given a loan, of course they shouldn't.

JON SOPEL: You have no evidence to say that Labour, there was a direct link, that Labour were saying, "You give us a loan and we'll give you a peerage."

LIAM FOX: Well these are of course the allegations being made and we'll no doubt find out in time exactly how true they are. But if they are true then there is a major problem which needs to be dealt with and we'll be bringing forward proposals to deal with those issues tomorrow.

JON SOPEL: But aren't you exactly on the same page as Labour on this. That I mean frankly, that you receive large loans, and there are people who as a result - who have made loans or given donations to the Party who've been sent to the House of Lords. I mean they be the perfect, perfect candidates.

LIAM FOX: Well, let's be clear what's happened. The Prime Minister was accepting loans, which he didn't tell his Party Treasurer about. There are allegations that those who gave those loans, expected to be on Labour's list of nominees for the House of Lords. People can judge for themselves what the likely truth is of that.

JON SOPEL: What should the cap be set at for donations.

LIAM FOX: We'll announce a figure tomorrow, but we think that there needs to be a reasonable balance set between what individuals can give and what might be required in terms of State funding, to offset that. It's a very difficult issue.

JON SOPEL: More or less than a hundred thousand.

LIAM FOX: Erm, well I would think it would be less than that.

JON SOPEL: Right, so less than fifty thousand.

LIAM FOX: ... we'll set a set a figure tomorrow and you can er, you can keep going as long as you like there but I think ...

BOTH TOGETHER

JON SOPEL: ... the serious point is you must have calculated how much less the Conservative Party would have had in its coffers at the last General Election if this system was put in place.

LIAM FOX: Yes, you can look at any one figure and you can work out how much you would be missing. Then you have to look at how much parties are allowed to spend in a General Election, and from that you can work out how much the State might be asked to contribute. Taxpayers - asked to contribute to compensate. We'll also be setting out off-setting proposals about the cost of our politics, including for example the huge cost of special advisers, which has rocketed under Labour.

JON SOPEL: And are you keen to talk about defence as well, which is your portfolio and understandably, you believe that Britain has to replace its nuclear deterrent don't you.

LIAM FOX: I do yes. I think we need to maintain Trident as long as we can, and then we'll have to replace it. And I believe that we have to replace it because there are states in the world still trying to get nuclear weapons and the best guarantee of them not being used, is for Britain to have an independent deterrent.

JON SOPEL: And you've been committed or opposed to the regiment mergers, to keeping to aircraft carriers. I mean I just wonder whether you believe that the government is spending enough on defence or whether under the Tories, there would be a lot more spending.

LIAM FOX: Well I think there's a more fundamental question than that if I may.
which is that at the moment we're spending 2.2% of our GDP on defence that's the lowest figure since 1930, and yet we've increased our commitment abroad, and we're just about to deploy more troops to Afghanistan for example, and I think that there needs to be a genuine debate in Britain, about whether we are going to reduce our commitments to match the side of the budget we have, or whether we have to increase our defence budget to match those commitments.

Clearly, at the moment, we have a huge amount of overstretch in our forces. It's having an impact on the morale of not only service men and women but their families. It's having an impact on the equipment that we have available to deploy. These questions require a proper debate and William Hague and I, are intent that in the Conservative party, we will have that debate about exactly what Britain's strategic objectives ought to be and exactly what sort of defence shape that we require to service that.

JON SOPEL: And Liam Fox, just on the sort of direction of travel of the Conservative Party if you like at the moment. I mean there was a big Labour rebellion over the education reforms, but there were also a significant number of Conservatives who were unhappy about supporting Labour's education reforms because they feel that you know, abandoning your commitment to grammar schools, blurs the identity between say David Cameron and Tony Blair. Do you think that's an issue.

LIAM FOX: We'll set our education proposals in the run up to the next election. What we were doing this week was saying to the government, if you'll give more freedom to schools than they currently have, which is of course something Conservatives want to see, then we'll give you our support. The problem for the government was that that's not a view that's shared on their own benches. One of the things that the Conservative Party needs to remember is that we avoid external coalitions in this country by maintaining internal coalitions, and that means that we have to be a broad Conservative family.

JON SOPEL: Ann Widdecombe said to us, you could have confused Thatcher and Foot, you couldn't actually have confused Major and Kinnock, but you could confuse Blair and Cameron. Is that a worry. Do you think there is, you need to be more distinctive.

LIAM FOX: I do think it's true, and I think that in Tony Blair you've got a Prime Minister whose time is running out, whose reputation is diminishing. And David Cameron is a political leader of the future, whose reputation is being enhanced almost on a daily basis. And it's the Conservative Party that the future belongs to in our politics, not the Labour Party.